(Bloomberg) -- New Jersey debt rose 7.9 percent in fiscal 2017, the biggest jump in more than a decade, during Chris Christie’s final year in office.

Bonded obligations increased by more than $3.3 billion to $46.1 billion, according to the annual debt report released Friday in Trenton. That doesn’t include $801 million the state has borrowed since July 1, the start of fiscal 2018.

Christie, a two-term Republican who pledged to “tear up the state’s credit card” and spend only what New Jersey could afford, borrowed more than $300 million last year without legislative or voter approval to fund a four-year statehouse renovation. The state also increased borrowing for school construction and road upgrades in anticipation of federal transportation grants, according to the report.

David Moore, deputy director of the state’s public finance office, said the roads borrowing was for two years of projects under the transportation trust fund.

During Christie’s terms, New Jersey was downgraded a record 11 times by the three major credit rating companies because of missed revenue forecasts and rising pension and benefit costs. Only Illinois has worse credit.

Last fiscal year, New Jersey’s non-bonded obligations soared 20 percent, to $155.2 billion, on pension and health-benefits liabilities, according to the report. In 2014, that figure was $101.8 billion.

New Jersey’s tax-supported debt was ranked third among U.S. states in a 2017 report by Moody’s Investors Service.

STATE’S BONDED DEBT SOARS TO NOSEBLEED HEIGHTS: $46.1 BILLION
JOHN REITMEYER | MARCH 26, 2018
It gets worse: New Jersey’s grand total owed to bondholders, public workers, and other groups climbs to stratospheric $200-plus billion

Spoiler:

The results of New Jersey’s latest big-picture fiscal checkup are in, and they reveal a state that continues to be saddled with a staggering amount debt — despite recent efforts to wind down Trenton’s time-worn borrowing habit.

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For starters, New Jersey’s bonded debt grew by nearly $3.2 billion during the past fiscal year, reaching a record-high total of $46.1 billion, according the latest official debt report released by the Department of Treasury.

That sum easily outpaces the state’s annual budget of just under $35 billion, and it doesn’t include roughly $725 million in borrowing that’s occurred so far during the current fiscal year. It also helped New Jersey maintain its standing as one of the nation’s most-indebted states, ranking fourth highest in the categories of net tax-supported debt and per-capita debt.

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Treasury’s latest accounting of state debt also provides a new estimate for all of the nonbonded obligations that New Jersey taxpayers are on the hook for, a category that includes unfunded public-employee pension and retiree health-benefit liabilities. That figure rose to $155.2 billion during the 2017 fiscal year, as the state continued a trend of underfunding its full pension contribution, according to the report.

The sky’s the limit
In all, the new grand total for what is owed to all bondholders, public workers and other groups soared to over $200 billion for the first time ever at the end of the 2017 fiscal year, a significant sum for a state with roughly 9 million residents. Yet the new debt figures drew little attention inside the State House after Treasury’s latest report was released on Friday during the meeting of a little-watched commission that tracks and reviews all state borrowing. Some panel members did use the report’s release to briefly rekindle a discussion about the affordability of public-employee benefits.

Public-finance experts generally agree that some level of debt is acceptable as states pay for long-term investments in things like roads and schools that are expected to last for generations. But state-government borrowing has surged on several occasions since the early 2000s leaving New Jersey with one of the highest debt burdens among U.S. states.

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When former Gov. Chris Christie took office in 2010, he promised to be more frugal, and the Republican initially had some success in lowering the rate of growth in the state’s annual debt. In fact, during the 2016 fiscal year, the state actually saw a slight year-over-year decrease in total bonded debt. But the latest official debt report tracked an increase of nearly 8 percent during the 2017 fiscal year, which was by far the largest rate of growth the state has seen in a decade. Treasury officials said much of the nearly $3.4 billion year-over-year increase stems from borrowing for state transportation projects that was issued under a renewed state Transportation Trust Fund.

The new report also detailed another $725 million in bonded borrowing that occurred during the current fiscal year, before Christie left office in early January. That total includes nearly $380 million in debt issued through the state Economic Development Authority to pay for new state office buildings in Trenton, and Juvenile Justice Commission facilities in Ewing and Winslow.

Getting around voters
Many in New Jersey were under the impression that a constitutional amendment approved by voters in 2008 had fully restricted borrowing through state agencies like the EDA without any signoff from voters. But last year, the Christie administration issued $300 million in new debt through the EDA for a controversial renovation of the State House without getting approval from voters. A group of lawmakers sued to block the financing, but a state Superior Court judge ruled that since the bonds had already been sold the legal issue was moot. After Christie used the EDA once again to finance the new state office buildings and juvenile-justice facilities, a judge ruling in another legal challenge found the 2008 constitutional amendment did not apply to the EDA because its authority to issue debt predated the amendment.

Assembly Deputy Republican Leader Ron Dancer (R-Ocean) has introduced a measure that would put a new constitutional amendment before voters to close what’s now become known as the “EDA loophole.”

“It’s really an evasion of our constitutional obligation to ask voters before we borrow money they will have to repay,” Dancer said after introducing the measure last month. “It’s time we put a stop to it.”

On the nonbonded side
Meanwhile, on the nonbonded side of New Jersey’s debt ledger, Treasury officials said the state’s continued underfunding of its obligation to the $77.5 billion pension system helped to fuel a more than $26 billion increase in the long-term assessment of what the state owes its retired workers. During the current fiscal year, Christie budgeted a $2.5 billion contribution to the pension system, which equals only about half the amount that actuaries say the state should be paying to help restore the retirement fund to good health.

The $37.4 billion budget plan put forward earlier this month by Gov. Phil Murphy, a Democrat, would boost the pension contribution to $3.2 billion, which would still be about $2 billion short of what actuaries say the state should be paying. If Murphy sticks with a payment ramp-up plan that was started by Christie, the state would make its full pension contribution by the 2023 fiscal year, a sum that will reach over $5 billion. Several members of the New Jersey Commission on Capital Budgeting and Planning asked about the affordability of that bigger payment during Friday’s meeting, as the latest debt report was released by Treasury, with longtime chair, Carol Molnar, wondering aloud whether it would necessitate more tax increases.

But another commission member, Sen. Sam Thompson (R-Middlesex), said the rising pension costs underscore the need to cut the cost of benefits, for both pensions and healthcare. That’s something Christie pressed for, with some initial changes made on a bipartisan basis in 2011. But he could not get any further cooperation from majority Democrats in the Legislature before leaving office.

“That’s the other way to do it, to reduce the liability,” Thompson said.

Meanwhile, lawmakers have already proposed two new state bond issues this year, one totaling $500 million for an expansion of career-training programs at county vocational-technical high schools and community colleges. The other seeks to raise $50 million to help local governments improve stormwater-runoff systems. Both would involve the sale of general-obligation bonds, which means they would have to be approved by voters.

I was driving over to Trenton the other day when I noticed a white sports car coming up on my left. At first I thought it was a Corvette. But as it sped past I realized it was something far more exotic: an Acura NSX.

At $200,000, the NSX costs about $130,000 more than a Corvette. But it was so beautiful I decided I needed to buy one anyway.

Unfortunately, I have a revenue problem. The Star-Ledger doesn't pay me that kind of dough. So I'm stuck with my current sports car, which was built in the prior millennium.

That's the way things work in the real world.

Inside the Statehouse things are different. I witnessed that when I heard the state treasurer address the Assembly Budget Committee on Monday.

Treasurer Elizabeth Maher Muoio presented a statement in which she managed to go on for seven pages without mentioning the elephant in the room.

Gov. Phil Murphy's first budget is packed with promises for new services like free preschool and free county colleges; but even with his tax hikes Murphy can't fund those programs; he can't even fix the pension deficit

Or should I make that the Acura NSX in the room? That's spending.

Like the guy who wants the sports car he can't afford, the state keeps spending on luxuries it can't afford.

One such luxury is the so-called "Platinum" level of health-care coverage that public employees enjoy.

State Sen. Declan O'Scanlon, who heard Muoio give the same presentation to the Senate Budget Committee Tuesday, said that the health-plan we give our public employees is the most generous in the nation.

"When Obamacare was laying out the Platinum and Gold standards for health-insurance plans, they didn't even recognize the actuarial value of the plans we have in New Jersey," the Monmouth County Republican said. "Switching to Gold-level health care would be like switching from an Acura to a Corvette. The actual performance difference between the two cars wouldn't even be noticed by the typical driver. But the savings would be huge.

The same goes for pensions.

"The Governor's proposed budget buries the irresponsible notion that skipping or reducing pension payments is acceptable," Muoio said in her statement.

It does nothing of the sort. In fact, Gov. Phil Murphy intends to skip $2 billion of the actuarially required contribution to the pension fund in his budget for fiscal 2019, which begins July 1.

Like the governors before him, Murphy is ducking his duty to make the full pension payment.

It could be done quite simply, however. All Murphy has to do is take that $2 billion out of the $17 billion he has earmarked for state aid, which goes primarily to school districts.

That would require big cutbacks on the local level and perhaps massive layoffs in some school districts. But if you want to provide Acura-level pensions and benefits to public employees, you can't do it by making Volkswagen-sized monthly payments.

Perhaps it's time to trade in the NSX for something more economical. Instead Murphy wants to do the fiscal equivalent of adding costly options.

The governor has said he wants to make county college free and also add free pre-K to our public schools. In other words, he wants to change our K-12 schools stem into a pre-K-to-adulthood school system.

Unfortunately, the governor doesn't have to take questions at the end of these budget presentations. If he did, some Republican like O'Scanlon would ask the obvious question:

You've just sat and listened to your own treasurer talk for hours about how we can't pay our current bills. How the heck do you expect to come up with billions for new programs?

That's not the sort of question Murphy likes to hear. He was supposed to appear on WNYC radio's "Ask Governor Murphy" program Thursday night but bowed out because an education reporter from the Politico website was going to be on the panel.

I don't know what questions that reporter was going to ask, but if I'd been on the panel I would have asked him about that report from the Pew Charitable Trust that came out earlier in the day. It stated that New Jersey and Kentucky are the two states with pension funds most likely to go bust if there's an economic downturn.

Most other states got a big revenue boost in the current economic boom. But business didn't boom in Jersey. One reason it that we're already taxed near the top level in most rankings.

There's no new source of revenue that won't make that situation worse. To put it in automotive terms, the repo man is ready to put this state on the hook.

So forget about new options. How are you gonna make the payments, Guv?

I don't work in pensions, or politics (which may be the real area of expertise for this question).

But what do people see as the (i) ideal outcome and (ii) the most likely outcome?

Will the state govt eventually have to moved to account based pensions and will that only apply to new employess or newly retired employees? What does "default" look like for a state govt if it comes to that?

Well, ideally, they would amend their constitution so they could do a few simple things, like reduce COLAs for current retirees and participants.

Okay, that's not really "ideal", but it's the most feasible.

Most likely for New Jersey, specifically -- in a race with Illinois and Kentucky for whose pension system fails first. Taxes continue to go up, people continue to leave, and ultimately, no $$ left in the pensions.

The Pew Charitable Trust (Pew) put out a 147-page paper summarizing the “results of a stress test simulation analysis on the largest government pension plans in 10 states under different economic scenarios and assumptions for policymaker behavior.”

Coincidentally, New Jersey just got a law requiring stress tests so Pew may have done some of the state’s work (had the results turned out a lot rosier).

Spoiler:

The Pew study only looks at New Jersey plans for teachers (TPAF) and the State portion of the Public Employee Retirement System (both seriously shorted by the state in recent decades) so the results look slightly worse then if the rest of the system (all PFRS and the local portion of PERS) were included.

Why New Jersey Is Headed for Another Government Shutdown
Even the return to one-party rule hasn't helped the perennial budget battles in Trenton.

Spoiler:

New Jersey, which is back under one-party rule for the first time in eight years, is on the brink of its second government shutdown in as many years. The Democratic governor and Democratic-controlled legislature can’t agree on which tax to raise to increase funding for core programs like K-12 education, mass transit and public pensions.

Gov. Phil Murphy wants to raise $1.4 billion in new revenue by restoring the 7 percent sales tax and establishing a millionaire's tax, which was a central issue of his campaign last year.

But the legislature wants to increase New Jersey’s corporate income tax, making it the highest in the country. Legislators added and passed the proposal as part of a larger $36.5 billion spending plan last week. Murphy has vowed to veto it, and unless New Jersey has a signed budget by midnight June 30, the government will shut down on Sunday.

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To some observers, neither option is all that appealing. New Jersey already has some of the highest taxes in the nation. In addition to the corporate tax rate, it has the nation's fifth-highest income tax rate, the eighth-highest state sales tax and the highest property taxes in the country.

Scott Drenkard, an economist with the conservative-leaning Tax Foundation, says the tax burden has been weighing down New Jersey’s economy. The state’s economic growth has lagged significantly behind the rest of the nation, and that has played a big role in the state’s perennial struggle to balance its budget. As a result, New Jersey's credit rating has been downgraded several times. “To me,” says Drenkard, “anything that doesn’t bring down marginal rates is probably not going to solve the root problems of the fiscal situation.”

The main opposition to Murphy's proposed millionaire's tax is Democratic Senate President Stephen Sweeney. He had initially supported the idea but that changed after the federal tax overhaul in December.

Tax revisions capped the state and local income tax deduction to just $10,000. In a high-tax state like New Jersey, that’s less than half the average deduction filers who itemize their taxes take. Sweeney thinks the imposed federal limits have made income tax hikes less palatable, especially since several other states -- such as Iowa -- responded to the tax overhaul by giving residents tax cuts.

But Meg Wiehe, deputy director of the left-leaning Institute on Taxation and Economic Policy, notes that the federal corporate income tax cut also has an effect on high-income earners. Historically, shareholders have been the biggest beneficiaries of corporate tax cuts. According to her organization’s research, that means New Jersey’s wealthiest 1 percent will still see a significant tax cut. “Sweeney has narrowly focused on one part of the tax cut package,” she says.

Brigid Harris, a political science professor at Montclair State University, chalks up the impasse between Democrats to a rocky relationship. As a first-term governor, she says, Murphy simply hasn’t spent enough time with legislative leaders -- who face elections next year -- to find common ground.

“My sense," she says, “is that there is a lack of understanding on the part of the governor’s office about the kinds of issues that concern the legislature and political realities they have to deal with."

In announcing a deal on the New Jersey FY19 budget Governor Phil Murphy commented on one of the taxes being increased or created for this budget:

Mr. Murphy said the four-year surcharge would tide the state over until economic growth generates more revenue.

“This economy has been flat as a pancake,” he said. “We need time to get there. We can’t get there overnight.”

That “economic growth” pipe dream was the mantra of former governor Chris Christie and several of his predecessors (most notably Christie Whitman) but with one fairly important variation.

Chrstie and Whitman were expecting economic growth from lower taxes (that often came by shorting pension contributions). Where is the economic research on higher taxes generating economic growth?

Here are just a few of the new laws passed today that would raise taxes and debt (all the bills are listed at the bottom of this blog for your review – I may have missed some other new taxes or debt that were snuck in):

A4202 Imposes surtax on corporation business tax liability; decouples certain provisions from Internal Revenue Code; imposes tax on certain dividends.
Passed both Houses In addition to the tax paid by each taxpayer determined pursuant to section 5 of P.L.1945, c.1628(C.54:10A-5), each taxpayer, except for a public utility, shall be assessed and shall pay a surtax as follows: (1) For a taxpayer, except a public utility, that has entire net income in excess of $1 million, but less than $25 million for the privilege period, the surtax imposed shall be 2.5%; (2) For a taxpayer, except a public utility, that has entire net income in excess of $25 million for the privilege period, the surtax imposed shall be 4%. (page 2)

A1753 AcaSa (2R) Imposes State sales and use tax and hotel and motel occupancy fee on transient accommodations; authorizes various municipal taxes and fees on transient accommodations.
Passed both Houses The rate thereof shall be $2 per day for each occupied room in the case of any hotels in the eligible municipality which provide casino gaming, and $1 per day for each occupied room in the case of the other hotels or transient accommodations in the eligible municipality. (page 16)

A3088 Acs w/GR (ACS/1R) Increases New Jersey Earned Income Tax Credit; provides credit for child or dependent care expenses; taxes”investment management services.” *
2nd Reading in the Senate to Concur with Gov/Recommendations there shall be imposed an additional surtax of 17 percent on income from investment management services received during the taxpayer’s taxable year. (page 10)

A4061 Acs w/GR (ACS/1R) Imposes surcharge on prearranged rides and increases certain fee associated with motor vehicle violations.**
2nd Reading in the Senate to Concur with Gov/Recommendations There is imposed on a transportation network company rider a surcharge of $0.30 upon every prearranged ride that originates and terminates within the State, except that only a $0.15 surcharge is imposed on the rider of a shared ride; provided, however, that no surcharge shall be imposed on a ride that originates and ends in a county with a population of fewer than 200,000 people, according to the latest federal decennial census. (page 2)